Jason Zweig

Updated March 5, 2011 12:01 a.m. ET

Corrections & Amplifications

ENLARGE

Christophe Vorlet

All the way from the Civil War (when a barrel of oil cost roughly $168 in today’s money) to the early 1970s, the oil price, adjusted for inflation, sloped jaggedly downward. Since then, it has lurched up and down and up again in response to events, such as the wave of revolutions sweeping across North Africa, that investors believe will affect supply or demand.

Even after the recent run-up, oil is down more than 25% from its price in mid-2008. Adjusted for inflation, the price of oil today is just 4% higher than it was at its last peak in January 1981, according to the U.S. Energy Information Administration. There were many sickening bumps throughout the intervening 30 years, but in the end the average annual gain, adjusted for inflation, was roughly 0.014%—a return that makes even a money-market fund look like a gusher. Even from early 1973, before oil prices tripled, the long-run real return is less than 4.5%, according to analyst Howard Simons of Bianco Research. That is less than the return on cash after inflation.

When prices have spiked, it has usually been because of supply fears—as in Iraq and Iran during their war in 1980-81, Kuwait in 1990 and Venezuela and Iraq in 2003. But supply shortages tend to be solved quickly. Over time, rising prices have consistently brought on rising production, which has tended to lead to falling prices.

Even Douglas Ober, portfolio manager of the oldest fund specializing in energy stocks— Petroleum & Resources Corp. which was founded in 1929—isn’t a long-term bull. As long as there is unrest in the Middle East and North Africa, we’re going to have higher oil prices, says Mr. Ober, who has run the fund since 1986. But once it settles down over there, oil prices will probably come back down. There’s a fair amount of speculation in the price.

Chances are, you already own plenty of oil-related stocks. Energy companies account for 13% of the total market value of the Standard & Poor’s 500-stock index. That may not sound like much—financial stocks make up 16%, and technology 19%—but energy’s weighting in the index has more than doubled in the past decade and has rarely been higher. Similar rises in the weightings of tech stocks in the 1990s and financials a few years ago were followed by steep declines in those stocks.

And the price of oil may matter less to stock investors than it used to. Nowadays, the stock market is dominated by technology, financial and health-care companies; their profits aren’t pounded nearly as hard by rising oil prices as are those of the oil-guzzling industrial firms that used to drive the U.S. economy.

Over the past decade, stock prices have been about half as sensitive to sharp moves in oil prices over the past decade as they were over the previous 10 years, estimates Sridhar Gogineni, a finance professor at the University of Oklahoma. In recent years, a 5% rise in oil prices has knocked an average of just 0.12% off stock returns. This year, oil is up better than 12%—and stocks have shrugged that off, rising 5%.

There’s an argument to be made that one way to offset higher energy prices is to buy energy stocks. That way, your gains on the stocks will mitigate the rising costs of gasoline, heating oil and electricity. And if your company’s profits will be hurt by rising oil prices, owning energy stocks could cushion a salary cut or, even worse, the loss of your job.

But this hedge is no slam dunk. Most firms whose profits are vulnerable to higher oil prices, like airlines, truckers and chemical producers, use the commodities market to hedge away their exposure. So, if your company hedges against oil prices, you probably don’t have to, says Francis Kinniry, an investment strategist at Vanguard Group. (The footnotes to the company’s annual report should indicate whether it hedges oil prices.)

It could be prudent to invest more in energy stocks if you are a retiree with a fixed income and a high home-heating bill or if you are self-employed and particularly vulnerable to a jump in gasoline prices. For most investors, however, there isn’t a need to join the black-gold rush.

intelligentinvestor@wsj.com; twitter.com/jasonzweigwsj

Corrections & Amplifications

The real return on cash since early 1973 is less than 2% annually, while the average annual increase in oil prices over that period was 4.5%. This column incorrectly states that the average annual increase in oil prices underperformed the return on cash after inflation.